Business Scene; So Far, No Shock For Consumers

By Louis Uchitelle

Published: July 30, 1990

AMERICAN consumers rarely cause a recession. Even when their incomes are barely rising, which is the case today, they somehow manage to spend enough to keep the economy afloat. Only a national shock seems to frighten them into cutting back so drastically that a recession becomes unavoidable. And so far in 1990, that shock has not come.

As Paul Samuelson, the Nobel laureate in economics, puts it, ''People try to maintain their living standards even in hard times, and they don't ration their spending until they feel forced to do so.''

What often forces them are widespread layoffs and rising unemployment. That alarms not only the newly unemployed, but also the millions of people still holding jobs. They postpone purchases and give up amenities and an incipient recession becomes a full-fledged one. This has been the pattern in six of the eight recessions since World War II. Only twice has the consumer initiated a recession without warm-up blows from layoffs, unemployment or other events that were already moving the nation toward recession.

The first consumer-led recession was in 1974, in response to suddenly rising oil prices that threatened to disrupt household budgets. Six years later, when President Carter restricted consumer credit to fight inflation, many Americans responded by putting away their credit cards for a while. Consumers account for two-thirds of the nation's economic activity, and when they ration this vast buying power, the economy inevitably contracts.

''There has to be a shock to make consumers slow down enough to participate in a recession,'' said David Hale, chief economist at Kemper Financial Services. Absent the shock, economists have great difficulty anticipating how consumers will behave during a prolonged period of sluggish economic growth, such as the present one.

The usual economic data fail to offer reliable guidelines. Commerce Department figures released on Friday, for example, showed that personal disposable income - what Americans have left to spend from all sources after paying their taxes - had risen at an average annual rate of only 1.5 percent over the past year, adjusted for inflation. But personal consumption almost kept pace, rising by 1.1 percent since June 1989.

From the viewpoint of the economy's health, the most important consumer spending involves durable goods, like cars, appliances and furniture. When this is cut sharply, the manufacturing sector responds by shutting down factories and laying off workers. But while spending on nondurables, like clothing, gasoline and restaurant meals, keeps weakening, spending on durables seems to be holding its own. True, the Commerce Department data released Friday showed a big cutback in durable-goods spending in the second quarter. On average, however, these purchases in the first six months of 1990 have remained above 1989 levels.

Clearly, the consumer is hard to anticipate: income might be weak, but spending holds up anyway. What is more, Americans have in reserve enough extra borrowing power to increase their spending, if the spirit moves them. Installment payments eat up a relatively low 11 percent of the average American's disposable income, largely because monthly payments have been stretched over longer periods. And delinquency rates on various forms of consumer credit have declined this year, surveys show.

''We consider this a sign that consumers are being cautious and are bringing their payments up to date,'' said Virginia Stafford, a spokeswoman for the American Bankers Association. The declining delinquency rates are also a sign that consumers can increase their borrowing and spending, if their caution should dissolve.

The key, then, to what happens next is the consumer's sense of well-being, a state of mind not tied very tightly to income. The Government's Index of Leading Economic Indicators, which tries to forecast the next swing in the national economy, recognizes this. Among the index's components, the one dealing with consumers reflects surveys of ''consumer sentiment,'' not income or spending. These surveys show a decline in consumer confidence this year, but not to recessionary levels, except in New England and the mid-Atlantic states.

In sum, consumers are not in shock in most of the nation, says Fabian Linden, who surveys consumer sentiment for the Conference Board, a business organization. ''But more people are saying that jobs will soon become harder to find,'' he said. ''There is less impulse-buying because there is less security about jobs.''

Another factor is also at work: even without a shock to their confidence, consumers are not likely to become big car buyers in the early 1990's, and motor vehicles account for more than 15 percent of all consumer spending. The problem is that car ownership has reached the level of almost one car for every driver in America, says Wynn Van Bussman, a Chrysler Corporation economist.

''To convince people to spend more on cars, you have to convince them to buy more options such as stereos and safety devices, and they are doing this,'' Mr. Van Bussman said. But when it comes to stimulating the economy, buying more options does not provide the punch that comes from adding to the number of cars on the road. ''It is a force that is holding down consumer spending,'' Mr. Van Bussman said. But not to recessionary levels.